Pepeliav Group Successful in Sony Mobile Appeal

Russia's Constitutional Court has ruled invalid the requirement of the Russian Tax Code that taxpayers should include in the tax base for VAT not only the cost of goods (work, or services) sold, but also any insurance payout they have received because the buyer has breached its obligation to pay for the goods.

According to the Pepeliav Group, "the Constitutional Court stated that if a taxpayer has calculated (paid) tax on an operation to sell goods (work or services), this requirement is lacking any economic justification and is at odds with the principle prohibiting double taxation." The Constitutional Court published its decision in its Resolution No. 19-P, dated July 1, 2015.

In 2013, the tax authorities accused Sony Mobile of failing to include in its returns insurance payouts received by way of compensation when it had not been paid for goods it had supplied. The company was charged approximately RUB 50 million, including penalties and default interest.

Sony Mobile was represented by Pepeliaev Group Senior Associate Vlaimir Voinov. Voinov, noting that situations involving double taxation are common, believes that the Constitutional Court’s decision could be significant in terms of developing court and administrative decisions in Russia. “Tax legislation should not have a material influence on a taxpayer’s selection of different methods for doing business which lead to the same result,” said Voino. “This is because tax legislation does not regulate the procedure or conditions for taxpayers to carry out financial and business operations.”

Pepeliaev Group Senior Associate Natalia Faizrakhmanova was also involved in preparing the appeal for Sony Mobile.